Furloughing Employees: Help and Advice for Employers

As an emergency measure related to the current Coronavirus pandemic, the UK government has introduced the Coronavirus Job Retention Scheme – a process for businesses furloughing employees.

As an emergency measure related to the current Coronavirus pandemic, the UK government has introduced the Coronavirus Job Retention Scheme – a process for businesses furloughing employees. While this may well be the answer to the problem of mass unemployment posed by the current lockdown, it has opened up a multitude of questions for businesses around employment law and the rights of employees regarding topics such as sick pay, benefits and taking time off.

Staying up to date with policy changes and understanding the workings of the furlough scheme is of paramount importance to employers in navigating a business through these unprecedented times. This guide provides comprehensive answers to the principal questions employers are likely to have, enabling you to decide whether furloughing staff is the right option for your business, and how to best safeguard the wellbeing of your employees.

What does furloughing employees involve?

Furloughing staff is a new option for UK businesses that has was announced on 20 March, 2020 and payments can be backdated to 1 March 2020, to help employers retain staff who are unable to do their jobs due to the coronavirus (COVID-19). Furloughed employees are kept on payroll, and employers can claim 80% of their usual monthly wage costs in the form of a grant from the Government, up to a maximum of £2,500 per person plus the associated Employer National Insurance contributions and minimum pension contributions.

Employers can choose to supplement the government contribution with top ups to take it up to the employees usual salary, at their discretion. Employees cannot undertake work for the business during the time period in which they are furloughed. However, they can volunteer for the business, as long as they are not generating revenue or providing a service.

I want to furlough my employee(s). What do I need to do?

There are four simple requirements for employers who want to use the Coronavirus Job Retention Scheme. Employers planning to furlough staff must:

Discuss with the affected employee(s) the decision to furlough

Make any changes to the employment contract by in writing and seek agreement from the employee(s)

Ensure the employee(s) is on PAYE payroll

Ensure that any furlough period arranged lasts 3 weeks or more

Who can decide to furlough employees?

All employers who use PAYE payroll to remunerate their staff are entitled to use the Coronavirus Job Retention Scheme for the employees on their payroll. The decision to furlough employees rests with employers. Staff cannot choose to furlough themselves, but they can ask employers to consider using the scheme.

The scheme is designed to help employers from all sectors retain their staff. It is intended to be particularly useful to businesses when the nature of work requires being present at the workplace — for instance, pubs, cafes, restaurants, cinemas and theatres and retail outlets. However, businesses in which employees or workers can theoretically work remotely can also use the Retention Scheme in cases where the current situation has compromised the nature or volume of available work.

Who can be furloughed, and for how long?

Employees and workers from all sectors can be furloughed by employers, even casual workers and those on zero-hours contracts, as long as they are on the PAYE payroll. All furloughs arranged must be planned to last for a minimum period of three weeks. The Coronavirus Job Retention Scheme itself began on 01 March 2020 and is a temporary scheme in place for 4 months, until the end of June.

All employees who need to shield (i.e. those who must stay away from contact with others to the fullest possible extent to avoid Coronavirus contagion), as well as parents and carers, are eligible for furlough by default, irrespective of their capability to carry out remote work or its availability.

Can employers furlough freelancers?

Employers can only furlough employees who are on their PAYE payroll. However, freelancers and self-employed individuals are entitled to use the Self-Employed Income Support Scheme, receiving a taxable grant of 80% of their expected income, up to a maximum of £2,500 per month.

Employers cannot apply for off-payroll employees to be placed on the Self-Employed Income Support Scheme. Nevertheless, employers working with employees on a freelance basis are recommended to advise them of the existence of this potential support.

Are furloughed employees entitled to statutory sick pay?

Employees who are on statutory sick pay can be furloughed by employers when they recover, i.e. when they would otherwise have returned to work, but for the constraints relating to the current Coronavirus-related situation.

All employees who would have been entitled to statutory payments — i.e. for shared parental leave, or maternity or paternity leave — remain entitled to these payments as normal.

Are furloughed employees entitled to perks and bonuses?

No. The full extent of employees’ entitlement under furlough is 80% of their usual monthly wages, up to £2,500, plus the associated Employer National Insurance contributions and minimum pension contributions. Perks and bonuses can only be added at the employer’s discretion, and the same is true of commission payments.

While employees under furlough are not entitled to perks and bonuses, the scheme will cover their pension contribution and the employer’s contribution to their National Insurance. Preparing guidelines for use within your business explaining what going on furlough entails will help clarify things for employees in a way that helps prevent any contentious issues.

How do I calculate furlough pay for a fluctuating salary?

Employers who are calculating the applicable payment for employees whose monthly wage fluctuates can identify their furlough entitlement as the highest sum out of their average monthly earnings for the period comprising the tax year of 2019-2020 before the furlough period began, or the employees earnings in the corresponding month of the previous year. Employers may find it useful to highlight to employees the fact that the government will not cover additional elements such as bonuses and commission payments as these are not covered under the scheme.

Can employees take holiday on furlough?

Employees retain their regular right to statutory annual leave — 5.6 weeks — and are recommended, where possible, to take their paid holiday days as normal in their current working year. Employees can take holiday whilst furloughed and should receive their usual pay from their employers while they are on annual leave.

The relationship between furlough and annual leave has been one of the most initially confusing aspects of the scheme for employers, especially as many employees are cancelling annual leave they had previously booked, in view of disruptions to their holiday plans caused by the current situation. Other employees, however, may be motivated to take annual leave as a means of receiving 100% of their daily pay, rather than the 80% rate available under furlough.

The latest government guidance has confirmed that during this unprecedented time, the policy on holiday pay during furlough is being kept under review.

Can furloughed employees carry over annual leave?

Carrying over untaken annual leave is possible on the Coronavirus Job Retention Scheme. For workers who have not taken all of their statutory annual leave entitlement due to the coronavirus, they will now be able to carry over a maximum of 4 weeks’ unused leave into the next two leave years.

This is a temporary measure, put in place by the Government to address situations where leave could not be taken by furloughed employees, due to self-isolation, illness, or because planned leave was cancelled by the employer. Staff on furlough who choose to cancel their planned annual leave for other reasons are not necessarily eligible to carry over untaken holiday days.

Can employers require employees to take holiday on furlough?

The Acas guidelines on furlough state that employers retain their usual rights regarding cancelling employees’ annual leave plans and to ask their employees to take holidays subject to notice being given. Employers can ask staff to cancel or take holidays but they must give sufficient notice.

When cancelling planned annual leave employers must give employees the same amount of days’ notice as the number of booked days of annual leave.

When requiring staff to take mandatory holiday, employers must give employees twice as much notice as the number of days they will be asking staff to take.

An employer might wish to take either of these courses of action in view of shifting circumstances relating to the Coronavirus and lockdown. Clearly communicating these rules to furloughed staff at the outset of their furlough will help employers to prevent any related disputes or problems resulting from disagreements around their annual leave plans.

Can employers ask employees to work during their furlough?

No. The premise of the furlough scheme is to provide income to employees who cannot carry out their work in current circumstances. Asking furloughed employees to work is therefore breaching the requirements of the scheme. As such, furloughed staff cannot provide a service or generate revenue for their employer.

Employees can, however, volunteer or undertake training. An employee can take part in volunteer work if it does not provide services to or generate revenue for, or on behalf of the employer or any associated organisation. Obviously, asking employees to volunteer to do tasks which by their nature help business operations, such as providing constructive guidance to employees who are not furloughed, is breaching the conditions of the scheme.

Furloughed employees can also undertake training and carry out courses, such as online training in work-related matters, such as health and safety, apprenticeship coursework etc. Employers will need to be careful not to breach the National Minimum Wage legislation in doing so or become unable to sustain the grant.

What happens to employees’ jobs when furlough ends?

The Coronavirus Job Retention Scheme is a temporary measure designed to help prevent mass unemployment during the current pandemic. The scheme has an initial four months’ duration, after which it is hoped that employers will be able to pay employees’ salaries again.

However, employers are not obliged to keep employees. Staff put on temporary furlough during the current situation should therefore receive a full explanation that the measure does not preclude them from being made redundant or dismissed with due process in the future.

Are employers obliged to use the furlough scheme instead of making employees redundant?

No, employers are not obliged to put any employees on furlough. It is the prerogative of every employer to decide whether it is in the best interests of the business to retain staff on a furloughed basis. Making staff redundant may be a preferable option for some employers.

If employers choose to make staff redundant, they are obliged to consider “suitable alternative employment” as part of employees’ redundancy rights. In the current situation, the furlough scheme would constitute a possible option in this regard. However, the decision to furlough an employee remains at the employer’s discretion, and an employee who is made redundant cannot insist on being put on the furlough scheme instead.

How can I collect reimbursements from the Government for the wages of furloughed staff?

The online portal is now open for employers to claim reimbursements from the Government for wages paid to furloughed staff. All businesses participating in the scheme can backdate their requests for reimbursements to 1 March 2020.

Furlough payments made under the scheme are currently scheduled to be issued for four months, currently predicted to last until the end of June. However, this plan will be reviewed, depending on the developments related to the Coronavirus. As the scheme entitles employers to a grant, they are not required to repay the Government at the end of the scheme.

Get in touch

The information on this page will be responsively updated in view of the latest developments in Government policy relating to the Coronavirus. If you would like to strategise any changes to your business operations that may be necessitated by the current situation — including furloughing employees — or require help enacting them, don’t hesitate to get in touch.